Revenue is not profit. You can make a TON of revenue selling a bunch of low end phones to a large number of people. Unfortunately, that doesn't translate into profit. The overwhelming majority of the Chinese phone market consists of those purchasing the low profit, low end phones.

That's because in comparison to the U.S., the people just don't have as much income. And that's because the pay is much lower due to the lower standard of living in dollar value. That's why iPhones are made in China, after all.

Here you go. The fact that the overwhelming majority of the market sells low end phones underscores the potential in China. In addition, you should know that the smartphone market in China already surpassed US by volume over a year ago.

“China has grown from a rounding error to a massive new market,” said Robert Cihra, an analyst at Evercore Partners. “Their premium price point clearly has not been any hurdle to them growing there.”

Mr. Cook said that enormous numbers of people moving into the middle class in China were creating demand for goods including the iPhone. He said Apple was “doing everything” it could to serve the market. The iPhone 4S went on sale in China on Jan. 13, near the beginning of the last quarter, and starts at nearly $800 without a wireless plan, though it is available free with a multiyear carrier contract.

Since becoming chief executive of Apple last fall, Mr. Cook has repeatedly identified China as one of the biggest growth opportunities for Apple. The growing appetite for Apple’s products among Chinese consumers comes at a time when Apple is working with manufacturing partners and parts suppliers to improve working conditions in factories in countries like China, where most Apple products are made.

Revenue is not profit. You can make a TON of revenue selling a bunch of low end phones to a large number of people. Unfortunately, that doesn't translate into profit. The overwhelming majority of the Chinese phone market consists of those purchasing the low profit, low end phones.

That's because in comparison to the U.S., the people just don't have as much income. And that's because the pay is much lower due to the lower standard of living in dollar value. That's why iPhones are made in China, after all.